Debit card preauthorization notice proposed

Consumers would be notified of debit card preauthorization hold practices under a bill considered Feb. 24 by the Banking, Commerce and Insurance Committee.

LB880, introduced by Scottsbluff Sen. John Harms, would require businesses to inform a customer if preauthorization hold practices are being conducted and facilitated.

Preauthorization hold is defined in the bill as approval for a debit card transaction in an amount greater than the amount of the actual purchase in order to provide additional funds for possible future purchases of goods or services by a consumer.

Notification to consumers that a business uses preauthorization holds would be through either oral or electronic communication during the transaction or a posting in at least 14 point in capital letters displayed at the point of sale. The notification would include the maximum amount and duration of the preauthorization hold. A business that fails to comply with the bill would be subject to a civil action penalty up to $2,000 under the Uniform Deceptive Trade Practices Act.

The bill also would require the state Department of Banking and Finance to work with interested groups on a consumer awareness brochure to be distributed to businesses and financial institutions.

Harms said many Nebraska families do not have a financial cushion in the bank accounts that are tied to their debit cards. As a result, he said, they face hardships when their debit card is declined due to preauthorization holds applied to previous purchases, which can be in place for up to 72 hours.

“My intent is to protect the low-income families who cannot afford … debit holds above the purchase price for any duration,” Harms said.

David Piester, a volunteer at the Center for People in Need in Lincoln, testified in support of LB880. Most people are not aware of the practice of preauthorization holds, he said, and the bill simply would ensure that consumers understand the practice.

“It would at least provide notice to the buyer,” Piester said. “It is the least action the state could take to protect the consumer.”

Kathy Siefkin of the Nebraska Grocery Industry Association testified in opposition to the bill. She said preauthorization holds apply only to open-ended transactions where the final dollar amount of a purchase is unknown, such as when a debit card is swiped at a gas pump.

In addition, Siefkin said, banks control when holds are removed from accounts. If consumer education is the goal, she said, it should be up to the banks to provide it.

“We have no control over the debit cards at all,” she said. “Retailers don’t control the processing; we are the people in the middle who sell the product.”

The committee took no immediate action on the bill.